The Irrelevance of Gender for Insurance Premiums

Much fuss has been made recently of the preliminary ruling made last year by EU advocate-general Juliane Kokott and the potential implications of the forthcoming ruling by the European Court of Justice (ECJ) concerning the use of gender in pricing insurance products. European law states that businesses can’t normally set different prices based on gender, but insurers currently enjoy an exemption so long as they can show that their premiums are based upon solid statistical evidence. In contrast to the “bureaucracy gone mad” claims of opponents such as Saga’s Dr Ros Altmann, for example, this ruling is a very important and rational move that will force insurers to think again about the way they price their products.

The problem is that gender itself does not cause young men to have more car accidents or women to live longer. Gender is simply a surrogate for a complex combination of social and physiological issues that affect some people more than others. Rather than trying to identify these issues and incorporate them into their models, insurers rely instead on the inappropriately blunt instrument that is gender simply because it’s far easier to do so. In the case of car insurance premiums for the under-25’s you can think of there being two groups of young people: those that are high-risk and those that are not. The problem is that a greater proportion of young men are in the high risk group and so gender presents itself as a very convenient surrogate for the high-risk category. However, because of their gender, perfectly sensible young male drivers are being tarred with the same brush as the higher risk group whilst high risk young women continue to enjoy lower premiums at the expense of their male counterparts. There is absolutely no statistical evidence to suggest that being male actually causes a driver to have more accidents and it would be ludicrous to suggest such a thing. Yet this is what the insurers should need to prove if they want to retain their exemption.

By making it illegal to set premiums on the basis of gender, the ECJ will force insurers to look again at their pricing policies and to identify what the real factors are that determine whether a young individual is high risk or not. In the meantime, the premiums for young women will increase, but at least sensible young male drivers will get a fairer deal and, for the first time, the inequity that arises from the existence of the relatively small group of high-risk drivers will be shared equally across everyone regardless of their gender.

It’ll be interesting to see whether a similar ruling is forthcoming based on a claim of age discrimination – surely not all young drivers are bad drivers…